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Ezel / Tax Rulings / CT
CT Ruling 94-10 Sales and Use Taxes 1994-06-16

Is a licensed casualty adjuster's insurance investigation and claims-adjusting work a taxable business-management or private-investigation service in Connecticut?

Short answer: No, on both counts. A company licensed as a 'casualty adjuster' that investigates and adjusts insurance claims for insurers — accident reconstruction, surveillance, interviews, polygraphs, document analysis, undercover work, and fraud detection — is NOT providing taxable 'business analysis, management, management consulting and public relations services' under Conn. Gen. Stat. § 12-407(2)(i)(J), because the work relates neither to the insurers' 'human resource' activities nor to their 'core business' (the regulation expressly says administering and keeping records on insurance claims against a service recipient in its capacity as an insurer is NOT core-business, Conn. Agencies Regs. § 12-407(2)(i)(J)-1(h)(7)). And it is NOT a taxable 'private investigation service' under § 12-407(2)(i)(D), because DRS reads that category to reach only detective work requiring a private-detective license from the Commissioner of Public Safety (§§ 29-153 through 29-161); casualty adjusters are instead licensed under the insurance statutes (§ 38a-792), which preempt the public-safety licensing for this work. This Ruling supersedes Rulings No. 89-219 and 89-220.

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This page answers the general question as of 1994. Ezel answers yours, under current Connecticut tax law, with citations.

Currency note: this ruling is from 1994
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Ruling of the Connecticut Department of Revenue Services (DRS), typically issued to a specific taxpayer in response to that taxpayer's request and based on the specific facts presented and the Connecticut tax law in effect when it was issued. DRS may later declare a Ruling obsolete or supersede it by a subsequent Ruling, Policy Statement, or Announcement, so a taxpayer with different facts should not assume it still applies. This Ruling itself supersedes Rulings No. 89-219 and 89-220. The result turns on the work being performed under a casualty-adjuster license; investigative work requiring a private-detective license could be taxable. Taxpayer-identifying details are redacted. Connecticut imposes its sales and use tax solely at the state level: there are no local or municipal sales taxes. This summary is informational only and is not legal or tax advice. Consult a licensed Connecticut tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A company licensed as a Connecticut "casualty adjuster" investigated and adjusted insurance claims for insurers — checking whether claims were legitimate and spotting fraud in wrongful-death suits and workers'-compensation cases. Its toolkit included accident reconstruction, activity checks, surveillance, research, handwriting and document analysis, interviews and statements, polygraph exams, photography, and undercover operations. DRS was asked whether that work fell into either of two taxable service categories. It said no to both.

Business-management services — § 12-407(2)(i)(J): No. These are taxable only when they relate to the recipient's "core business" or its "human-resource management." The adjuster's work is neither. Critically, the regulation itself lists, among activities not treated as core-business, "the administration of, and recordkeeping related to, insurance claims against a service recipient in its capacity as an insurer" (Conn. Agencies Regs. § 12-407(2)(i)(J)-1(h)(7)). Investigating and adjusting an insurer's claims is exactly that — so it's not taxable business management.

Private investigation services — § 12-407(2)(i)(D): No. DRS applied the same licensing test it used in the companion Ruling 94-7: the taxable "private investigation" category reaches the detective/investigative work that requires a private-detective license from the Commissioner of Public Safety under Conn. Gen. Stat. §§ 29-153 through 29-161. But casualty adjusters are licensed under the insurance statutes (Conn. Gen. Stat. § 38a-792 and its regulations), and DRS held those specific insurance-licensing laws preempt the public-safety licensing for this work — so the Commissioner of Public Safety does not license casualty adjusters' insurance investigations. Because the work doesn't require a private-detective license, it isn't a taxable "private investigation service."

DRS noted this Ruling supersedes Rulings No. 89-219 and 89-220.

What this means for you

Licensed casualty adjusters and insurance investigators

If you investigate and adjust insurance claims under a casualty-adjuster license, that work generally isn't taxable in Connecticut — not as business-management services (adjusting an insurer's claims isn't its "core business" under the regulation) and not as private investigation (you're licensed under insurance law, not the private-detective statutes).

Insurers buying investigation/adjusting services

You generally should not be charged Connecticut sales tax on a licensed casualty adjuster's investigation and adjusting of your claims. The regulation specifically pulls insurance-claim administration and recordkeeping out of the taxable "core business" definition.

The licensing line still matters

The exemption rests on the work being done under the insurance license. Investigative services that would require a private-detective license under §§ 29-153–29-161 can still be taxable under § 12-407(2)(i)(D). DRS built this analysis on Ruling 94-7, which set the license-based definition of "private investigation services."

Common questions

Q: Is a casualty adjuster's insurance investigation taxable in Connecticut?
A: No. DRS held it is neither a taxable business-management service nor a taxable private-investigation service, because adjusting an insurer's claims isn't the insurer's core business and the adjuster is licensed under insurance law, not the private-detective statutes.

Q: Surveillance, polygraphs, undercover work — doesn't that sound like "private investigation"?
A: It can look like it, but DRS defines the taxable category by licensing. Casualty adjusters are licensed under Conn. Gen. Stat. § 38a-792, which preempts the private-detective licensing for this work, so it falls outside § 12-407(2)(i)(D).

Q: Why isn't investigating claims a "business-management service" for the insurer?
A: Because the regulation expressly says administering and keeping records on insurance claims against a recipient in its capacity as an insurer is not a "core business" activity (§ 12-407(2)(i)(J)-1(h)(7)), and the work isn't human-resource management either.

Q: Does this change earlier rulings?
A: Yes. DRS said Ruling 94-10 supersedes Rulings No. 89-219 and 89-220.

Citations and references

Statutes and regulations:

  • Conn. Gen. Stat. § 12-407(2)(i)(J) (business-management services); Conn. Agencies Regs. § 12-407(2)(i)(J)-1(h)(7) (insurance-claim administration not core-business), -1(i) (human resource management activities)
  • Conn. Gen. Stat. § 12-407(2)(i)(D) (private investigation etc. services); Conn. Agencies Regs. § 12-426-27(b)(5) (definition)
  • Conn. Gen. Stat. § 38a-792; Conn. Agencies Regs. §§ 38a-792-1 through 5 (casualty-adjuster licensing)
  • Conn. Gen. Stat. §§ 29-153 through 29-161 (private-detective licensing by the Commissioner of Public Safety)

Related guidance (described in prose, not linked):

  • Ruling No. 94-7 (license-based definition of "private investigation services"; cited by this Ruling)
  • Rulings No. 89-219 and 89-220 (superseded by this Ruling)

Source

Original ruling text

Ruling 94-10, Sales and Use Taxes / Insurance Investigation Services / Business Management and Consulting Services / Private Investigation Services

FACTS:

A company that is licensed by the Department of Insurance under Conn. Gen. Stat. §38a-792 as a "casualty adjuster" (the "Company") renders "insurance investigation" services and "adjusting" services to insurance companies in Connecticut. In general, insurers hire the Company to investigate the propriety of insurance claims and to investigate subrogation opportunities. For example, the company investigates wrongful death suits for fraudulent allegations and workers' compensation cases to identify fraud and abuse.

The specific activities in which the Company engages in rendering its insurance investigation and adjusting services include: accident reconstruction, activity checks, surveillance, research, handwriting and document analysis, conducting interviews and taking statements, conducting polygraph examinations, taking photographs, and undercover operations.

ISSUES:

Whether the Company's insurance investigation and adjusting services are taxable "business analysis, management, management consulting and public relations services" under Conn. Gen. Stat. §12-407(2)(i)(J).

Whether the Company's insurance investigation and adjusting services are taxable "private investigation, protection, patrol work, watchman and armored car services" under Conn. Gen. Stat. §12-407(2)(i)(D).

DISCUSSION:

Conn. Gen. Stat. §12-407(2)(i)(J) imposes sales and use taxes on "business analysis, management, management consulting and public relations services" ("business management services"). Conn. Agencies Regs. §12-407(2)(i)(J)-1 provides that to be taxable, business management services must relate to the service recipient's "core business" or "human resource management activities."

Subsection (h)(7) of the regulation provides that activities not generally regarded as directly related to a service recipient's core business include "the administration of, and recordkeeping related to, insurance claims against a service recipient in its capacity as an insurer..." Subsection (i) of the regulation provides that "human resource management activities" relate to the service recipient's "hiring, development, job-related training, compensation and management of personnel, employee relations, or the design and implementation of employee benefit plans."

The Company's insurance investigation and adjusting services do not relate to the service recipients' human resource activities. Nor do they relate to the service recipients' core businesses, because they address "the administration of, and recordkeeping related to, insurance claims against a service recipient in its capacity as an insurer..." Therefore, the Company's insurance investigation and adjusting services are not taxable business management services.

Turning to the second issue, Conn. Agencies Regs. §12-426-27(b)(5) provides that "private investigation, protection, patrol work, watchman and armored car services" mean and include:

providing personnel or canines to patrol or guard property; engaging in detective or investigative duties; safeguarding or maintaining a surveillance of an individual; maintaining and monitoring mechanical protective devices, such as burglar and fire alarm systems; providing armored cars for the transportation of valuables; wrapping coins; setting up a payroll; and the rendering of police services by an off-duty policeman.

Although Conn. Agencies Regs. §12-426-27(b)(5) was intended to define the scope of taxable services enumerated in Conn. Gen. Stat. §12-407(2)(i)(D), it does not further define "private investigation services" or "engaging in detective or investigative duties."

However, when Conn. Gen. Stat. §12-407(2)(i)(D) was enacted in 1975, Conn. Gen. Stat. § § 29-153 through 29-161 required persons who furnished private detective or investigative services to be licensed by the Commissioner of Public Safety. Presumably, the General Assembly was aware of this licensing requirement, and intended the phrase "private investigation services" in Conn. Gen. Stat. § 12-407(2)(i)(D), and the phrases "private investigation services" and "engaging in detective or investigative duties," to refer to those services for which a license was required under Conn. Gen. Stat. §§ 29-153 through 29-161. (See Ruling No. 94-7.)

Insurance investigators who adjust insurance claims may be required to be licensed in Connecticut, depending upon the type of claim that is adjusted. See Conn. Gen. Stat. § 38a-792 and Conn. Agencies Regs. §§ 38a-792-1 through 5. Conn. Agencies Regs. § 38a-792-1 requires casualty adjusters to be licensed in Connecticut.

With respect to insurance investigation services performed by casualty adjusters, the specificity of Conn. Gen. Stat. § 38a-792 and the regulations thereunder demonstrates that the insurance laws preempt the public safety statutes requiring private detectives, investigators, and watchmen to be licensed. Accordingly, the Commissioner of Public Safety does not license casualty adjusters who perform insurance investigation services. Therefore, since the Company's insurance investigation and adjusting services are not the types of services for which a license is required under Conn. Gen. Stat. §§ 29-153 through 29-161, those services do not constitute "private investigation services" or "engaging in detective or investigative duties" for purposes of Conn. Gen. Stat. §12-407(2)(i)(D) and Conn. Agencies Regs. §12-426-27(b)(5).

RULING:

The Company's insurance investigation and adjusting services performed under the authority of its casualty adjuster license are not taxable "business analysis, management, management consulting and public relations services" under Conn. Gen. Stat. 12-407(2)(i)(J) because they do not relate to the service recipients' human resource activities or to the service recipients' core businesses.

The Company's insurance investigation and adjusting services performed under the authority of its casualty adjuster license are not taxable "private investigation, protection, patrol work, watchman and armored car services" under Conn. Gen. Stat. 12-407(2)(i)(D). For purposes of Conn. Gen. Stat. 12-407(2)(i)(D), "private investigation services" and "engaging in detective or investigative duties" are those services for which a license from the Commissioner of Public Safety is required by Conn. Gen. Stat. §§ 29-153 through 29-161. Casualty adjusters, who also perform insurance investigation services, are licensed under the insurance statutes, not the public safety statutes.

This Ruling supersedes Rulings No. 89-219 and 89-220.

LEGAL DIVISION

June 16, 1994

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